{"id":188326,"date":"2022-06-03T21:03:30","date_gmt":"2022-06-03T15:33:30","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=188326"},"modified":"2022-06-03T21:03:30","modified_gmt":"2022-06-03T15:33:30","slug":"price-of-wrong-price-strategy","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/price-of-wrong-price-strategy\/","title":{"rendered":"Price Of Wrong Price Strategy"},"content":{"rendered":"\n

News: <\/strong>India is now facing a dual problem of low growth and high inflation<\/strong> at the time when India is facing a historic opportunity<\/strong> to use exports to boost India\u2019s GDP growth<\/strong>.<\/p>\n

Historic Opportunities<\/strong><\/p>\n

Two large countries China and Russia are reducing their presence on the international trade landscape, providing opportunities to India<\/strong>:<\/p>\n

– China, the main export engine of the world has been shutting down its factories, and MNCs are looking for new production locations, and<\/p>\n

–<\/strong> Russia is facing strict economic sanctions<\/p>\n

What is the status of inflation and growth in the Indian Economy?<\/strong><\/p>\n

Inflation<\/strong><\/p>\n

Inflation has been surging alarmingly over the past few weeks. The CPI (consumer price index) inflation<\/strong> was close to 8% in April against the RBI\u2019s legally mandated target of 4%.<\/p>\n

Growth<\/strong><\/p>\n

The economic recover<\/strong>y has been much weaker than expected. The growth was 4.1% in the fourth quarter of 2021-22.<\/p>\n

What are the driving forces behind rising inflation?<\/strong><\/p>\n

This has been primarily due to supply-side bottlenecks<\/strong>. This has been triggered first by the pandemic and subsequently by the Russia-Ukraine War and lockdowns in China.<\/p>\n

Measures Taken Now<\/strong><\/p>\n

(A) Monetary Policy Strategy<\/strong><\/p>\n

RBI has been pursuing an easy monetary policy<\/strong>. For example, RBI is still in \u201caccommodative\u201d mode<\/strong>.<\/p>\n

(B) Fiscal Policy Strategy<\/strong><\/p>\n

The central government is trying hard to bring down the cost of commodities.<\/p>\n

The central government has now announced a slew of measures to ease the supply constraints<\/strong>. For example, ban on wheat exports, cap on sugar exports, lowering of the excise tax on petrol and diesel, reduction in the import duty on steel, imposition of an export duty on steel products and increased the export duty on iron ore among others.<\/p>\n

What are the issues in the RBI and the government measures to tackle inflation?<\/strong><\/p>\n

(A) Monetary policy<\/strong><\/p>\n

Despite having supply constraints, RBI\u2019s monetary policy is aimed at encouraging demand<\/strong>. As a result, inflation has been increasing.<\/p>\n

(B) Fiscal Policy
\n<\/strong>It is going to have a modest effect<\/strong> on inflation because inflation is now broad-based<\/strong>. It means, it has extended to virtually every good<\/strong> and service<\/strong> in the economy.<\/p>\n

Instead of the inflation containment, the government\u2019s interventions will damage growth<\/strong> by undermining exports<\/strong> and investment<\/strong>.<\/p>\n

How will the government measures impact the growth?<\/strong><\/p>\n

The government\u2019s actions will have only a marginal effect<\/strong> on inflation. These efforts may cause significant damage to the incipient recovery<\/strong>.<\/p>\n

India has unprecedented scope to attract international firms<\/strong> to produce and export from here. But, exploiting the opportunities requires an appropriate policy stance, and <\/strong>a stable <\/strong>and consistent trade<\/strong> policy<\/strong>.<\/p>\n

The radical policy exposes both exporters<\/strong> and importers<\/strong> to large losses. For example, firms cannot fulfil their contracts. Thus, foreign firms will be reluctant to place orders with Indian firms.<\/p>\n

MNCs will be discouraged from shifting their production to India<\/strong> due to a risk that its exports could be banned, and its imports may be subjected to high duties overnight.<\/p>\n

The Centre\u2019s revenue will see reduction<\/strong> due to reduction in excise taxes on petrol and diesel.<\/p>\n

Way Forward<\/strong><\/p>\n

The macroeconomic policy<\/strong> has the delicate task of simultaneously tackling inflation<\/strong> and promoting the recovery<\/strong>. Therefore,<\/p>\n

The RBI<\/strong> must take full responsibility to tackle inflation<\/strong>. It should give a clear signal that it will focus only on bringing inflation down without getting distracted by any other objective.<\/p>\n

The government<\/strong> should focus on growth<\/strong>. It should reduce market interventions, eliminate prohibitions, and dismantle trade barriers. This will incentivise the firms to export and invest.<\/p>\n

The government needs to step back from the inflation fight, and instead encourage RBI to tighten monetary policy.<\/p>\n

Source<\/strong>: The post is based on an article \u201cPrice of wrong price strategy\u201d<\/strong> published in the Times of India<\/strong> on 3rd<\/sup> June 2022<\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":"

News: India is now facing a dual problem of low growth and high inflation at the time when India is facing a historic opportunity to use exports to boost India\u2019s GDP growth. Historic Opportunities Two large countries China and Russia are reducing their presence on the international trade landscape, providing opportunities to India: – China,… Continue reading Price Of Wrong Price Strategy<\/span><\/a><\/p>\n","protected":false},"author":10328,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,10496],"class_list":["post-188326","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-times-of-india","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704649023},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/188326","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10328"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=188326"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/188326\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=188326"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=188326"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=188326"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}